May 16, 2013

Down the Rabbit Hole

Alice, a corporation from Down Under, got a family of system and method
patents that broadly claimed computerizing escrow as a way of mitigating
settlement risk. CLS got spooked and got a summary declaratory judgment of
invalidity via §101 without the judge bothering to construe the claims. In
an en banc appeal, the CAFC, in affirmance, displays a profound ignorance of
the law with a stunning absence of cogency.

Simple legal terminology takes a beating here. The seriatim opinions
(a series written by individual judges, as singular consensus is lacking) in
this case is instead labeled per curiam, which is typically a short
unanimous opinion that does not identify the opinion's author.

While Chief Judge Rader is correct to note that no single opinion issued
today commands a majority, seven of the ten members, a majority, of this en
banc court have agreed that the method and computer-readable medium claims
before us fail to recite patent-eligible subject matter. In addition, eight
judges, a majority, have concluded that the particular method, medium, and
system claims at issue in this case should rise or fall together in the §101
analysis.

In essence, there is no consensus in how to interpret §101.

Judge Lourie, with Dyk, Prost, Reyna and Wallach along, points out the
self-contradictory nature of §101, in being both a broad grant by Congress,
while restricted by the courts. Lourie admits that the court has a tenuous grasp
on technology with regard to patentability, particularly computers.

The root
problem, if there is one, is the CAFC's
evisceration of §112 ¶2, which requires definite claims. If the
claims are as broad as some judges opine, they should be unpatentable for
indefiniteness. But then, the difference between being broad and being abstract
is beyond the grasp of the CAFC bench.

"Whoever invents or discovers any new and useful process, machine,
manufacture, or composition of matter, or any new and useful improvement
thereof, may obtain a patent therefor, subject to the conditions and
requirements of this title." 35 U.S.C. § 101 (2006). Short and unadorned, §
101 appears deceptively simple on its face, yet its proper application to
computer-implemented inventions and in various other fields of technology
has long vexed this and other courts.

The statute sets forth four broadly stated categories of patent-eligible
subject matter: processes, machines, manufactures, and compositions of
matter. As the Supreme Court has explained, Congress intended that the
statutory categories would be broad and inclusive to best serve the patent
system's constitutional objective of encouraging innovation. See Diamond
v. Chakrabarty, 447 U.S. 303, 308-09 (1980) ("In choosing such
expansive terms as 'manufacture' and 'composition of matter,' modified by
the comprehensive 'any,' Congress plainly contemplated that the patent laws
would be given wide scope."); Bilski, 130 S. Ct. at 3225 ("Congress
took this permissive approach to patent eligibility to ensure that
'ingenuity should receive a liberal encouragement.'" (quoting
Chakrabarty, 447 U.S. at 308)).

It is also important to recognize that
§ 101, while far-reaching, only
addresses patent eligibility, not overall patentability. The statute
directs that an invention that falls within one of its four enumerated
categories "may" qualify for a patent; thus, inventions that are patent
eligible are not necessarily patentable. As § 101 itself explains, the
ultimate question of patentability turns on whether, in addition to
presenting a patent-eligible invention, the inventor also satisfies "the
conditions and requirements of this title," namely, the novelty,
nonobviousness, and disclosure requirements of 35 U.S.C. §§ 102, 103, and
112, among others. See 35 U.S.C. § 101. Congress's broad approach
to subject-matter eligibility ensures that the patent office doors remain
open to most inventions, but even so, those that gain entry still must
surmount various substantive and procedural hurdles that stand between
patent eligibility and a valid patent. See Diamond v. Diehr, 450
U.S. 175, 191 (1981).

While the categories of patent-eligible subject matter recited in § 101 are
broad, their scope is limited by three important judicially created
exceptions. "[L]aws of nature, natural phenomena, and abstract ideas" are
excluded from patent eligibility, id. at 185, because such fundamental
discoveries represent "the basic tools of scientific and technological
work," Gottschalk v. Benson, 409 U.S. 63, 67 (1972). Thus, even
inventions that fit within one or more of the statutory categories are not
patent eligible if drawn to a law of nature, a natural phenomenon, or an
abstract idea. The underlying concern is that patents covering such
elemental concepts would reach too far and claim too much, on balance
obstructing rather than catalyzing innovation. But danger also lies in
applying the judicial exceptions too aggressively because "all inventions at
some level embody, use, reflect, rest upon, or apply laws of nature, natural
phenomena, or abstract ideas." Mayo Collaborative Servs. v. Prometheus
Labs., Inc., 132 S. Ct. 1289, 1293 (2012). Taken too far, the
exceptions could swallow patent law entirely.

Accordingly, the basic steps in a patent-eligibility analysis can be
summarized as follows. We must first ask whether the claimed invention is a
process, machine, manufacture, or composition of matter. If not, the claim
is ineligible under § 101. If the invention falls within one of the
statutory categories, we must then determine whether any of the three
judicial exceptions nonetheless bars such a claim--is the claim drawn to a
patent-eligible law of nature, natural phenomenon, or abstract idea? If so,
the claim is not patent eligible. Only claims that pass both inquiries
satisfy § 101.

While simple enough to state, the
patent-eligibility test has proven quite difficult to apply. The
difficulty lies in consistently and predictably differentiating between, on
the one hand, claims that would tie up laws of nature, natural phenomena, or
abstract ideas, and, on the other, claims that merely "embody, use, reflect,
rest upon, or apply" those fundamental tools. Mayo, 132 S. Ct. at
1293. For example, deciding whether or not a particular claim is abstract
can feel subjective and unsystematic, and the debate often trends toward the
metaphysical, littered with unhelpful analogies and generalizations. What is
needed is a consistent, cohesive, and accessible approach to the § 101
analysis--a framework that will provide guidance and predictability for
patent applicants and examiners, litigants, and the courts. As set forth
below, the Supreme Court's foundational § 101 jurisprudence offers the
guideposts to such a system, one that turns primarily on the practical
likelihood of a claim preempting a fundamental concept. We would adopt this
approach to address the abstractness of the specific computer-implemented
inventions presented in this case, but it might also inform
patent-eligibility inquiries arising in other contexts.

The claims go to a particular and specific implementation; not really broad
at all. But the gallows is set, so the patents must swing. The root problem is
that the patents are simply too valuable to be held by some pipsqueak company in
Oz.

[U]pholding Alice's claims to methods of financial intermediation "would
preempt use of this approach in all fields, and would effectively grant a
monopoly over an abstract idea."

The basic confusion over computerization is laughable, if not pathetic for
the court's misapprehension. As if software were metaphorical voodoo, Lourie lays
out how its implementation creates an abstraction when written as a patent
claim.

[C]omputers that have routinely been adapted by software consisting of
abstract ideas, and claimed as such, to do all sorts of tasks that formerly
were performed by humans. And the Supreme Court has told us that, while
avoiding confusion between § 101 and §§ 102 and 103, merely adding existing
computer technology to abstract ideas--mental steps--does not as a matter of
substance convert an abstract idea into a machine.

That is what we face when we have a series of claims to abstract methods and
computers fitted to carry out those methods. We are not here faced with a
computer per se. Such are surely patent-eligible machines. We are faced with
abstract methods coupled with computers adapted to perform those methods.

Chief Judge Rader's opinion, joined by judges Linn, Moore, and O'Malley, is
unenlightening. Rader's peruses the legislative history of the statute to no
effect. His analysis is vapid.

The relevant inquiry must be whether a claim includes meaningful limitations
restricting it to an application, rather than merely an abstract idea.

And, we know that, even if a claim does not wholly pre-empt an abstract
idea, it still will not be limited meaningfully if it contains only
insignificant or token preor post-solution activity--such as identifying a
relevant audience, a category of use, field of use, or technological
environment.

[T]he fact that a claim is limited by a tie to a computer is an important
indication of patent eligibility.

The key to this inquiry is whether the claims tie the otherwise abstract
idea to a specific way of doing something with a computer, or a specific
computer for doing something; if so, they likely will be patent eligible,
unlike claims directed to nothing more than the idea of doing that thing on
a computer.

Rader fundamentally misstates how software works. The ignorance is shocking.

This court long ago recognized that a computer programmed to perform a
specific function is a new machine with individualized circuitry created and
used by the operation of the software.

In reality, software simply directs a general-purpose algorithmic machine to
a particular set of functions.

A telling footnote that goes to the heart of the issue is nonsensical.

We must disagree with Judge Lourie that a computer must do something other
than what a computer does before it may be considered a patent-eligible
invention. See Lourie Op. at 27 ("At its most basic, a computer is
just a calculator capable of performing mental steps faster than a human
could. Unless the claims require a computer to perform operations that are
not merely accelerated calculations, a computer does not itself confer
patent eligibility."). Everything done by a computer can be done by a human.
Requiring a computer to do something that a human could not would mean that
computer implementation could never produce patent eligibility. If a
computer can do what a human can in a better, specifically limited way, it
could be patent eligible. Indeed, even an increase in speed alone may be
sufficient to result in a meaningful limitation; if a computer can perform a
process that would take a human an entire lifetime, a claim covering that
solution should be sufficiently limited to be patent eligible.

The fact is that computer software, as a matter of course, does things that a
human cannot. (Animation (CGI) is one example. Certain effects are achieved in
movies that are practically impossible to generate otherwise. Any film buff
knows this to be the case, especially considering science fiction movie "special
effects".) The issue properly addressed here is not whether software is
patent-eligible, but whether automation is itself conceptually new. Doing
something on a computer that can be done by hand, no matter how tedious, is not
patentable if it has been done. But that is a prior art invalidity question, not
§101.

Although joined by Rader, Linn and O'Malley, Judge Moore has different take,
finding the system claims patent eligible. She does appreciate the magnitude of
inept jurisprudence on the CAFC bench.

I am concerned that the current interpretation of § 101, and in
particular the abstract idea exception, is causing a free fall in the patent
system. The Supreme Court has taken a number of our recent decisions and, in
each instance, concluded that the claims at issue were not patent-eligible.
See Bilski, Prometheus, Myriad (under consideration).
Today, several of my colleagues would take that precedent significantly further,
lumping together the asserted method, media, and system claims, and holding that
they are all patent-ineligible under § 101. Holding that all of these claims are
directed to no more than an abstract idea gives staggering breadth to what is
meant to be a narrow judicial exception. And let's be clear: if all of these
claims, including the system claims, are not patent-eligible, this case is the
death of hundreds of thousands of patents, including all business method,
financial system, and software patents as well as many computer implemented and
telecommunications patents.

To get to their conclusion, my colleagues trample upon a mountain of
precedent that requires us to evaluate each claim as a whole when analyzing
validity.

Judge Newman surveys the wreckage.

The ascendance of section 101 as an independent source of litigation,
separate from the merits of patentability, is a new uncertainty for
inventors. The court, now rehearing this case en banc, hoped to ameliorate
this uncertainty by providing objective standards for section 101
patent-eligibility. Instead we have propounded at least three incompatible
standards, devoid of consensus, serving simply to add to the unreliability
and cost of the system of patents as an incentive for innovation. With
today's judicial deadlock, the only assurance is that any successful
innovation is likely to be challenged in opportunistic litigation, whose
result will depend on the random selection of the panel.

Reliable application of legal principles underlies the economic incentive
purpose of patent law, in turn implementing the benefits to the public of
technology-based advances, and the benefits to the nation of industrial
activity, employment, and economic growth. Today's irresolution concerning
section 101 affects not only this court and the trial courts, but also the
PTO examiners and agency tribunals, and all who invent and invest in new
technology. The uncertainty of administrative and judicial outcome and the
high cost of resolution are a disincentive to both innovators and
competitors.

Newman then creates a wish list that has no fulfillment. One item - that
"experimental use of patented information" not be barred - has nothing to do
with this case; instead going to the
Myriad
opinion, where the CAFC let discovered DNA sequences be treated as patentable.
Newman's wish is expressly against the law (§ 271: "whoever without authority
makes, uses...").

A scolding dissent by Judges Linn and O'Malley (who had otherwise joined in
much of the gibberish).

The method, media, and system claims we review today must rise and fall
together; either they are all patent eligible or they are not. This is so,
not because, as Judge Lourie's opinion concludes, they are all tainted by
reference to the same abstract concept, but because the record we are
presented makes clear that they are grounded by the same meaningful
limitations that render them patent eligible.

The district court jumped the gun to kill the claims.

The summary judgment process occurred prior to construction of the
asserted claims and their attendant limitations. Indeed, the court considered
and granted CLS's summary judgment motion before ever conducting a hearing
pursuant to Markman v. Westview Instruments, Inc., 517 U.S. 370 (1996),
and even before briefing on claim construction. As such, no determination has
ever been made regarding how one of skill in the art would understand the claims
as of the date of issuance. And, no careful assessment of the intrinsic record
or prosecution history has ever occurred; much of this was never even made a
part of the trial record.

Our colleagues ignore the record of the lower court proceedings and
the stipulations by which CLS agrees it must be bound... [The other judges
construe the claims ridiculously broadly to reach their conclusions.] None of
those judges explains how the record supports the claim constructions in which
they engage, however... And, they summarily reject the trial court's assumption
that the method claims require the same computer implementation as the system
claims.

Lourie is a special object of contempt for Linn and O'Malley.

Judge Lourie not only divorces his analysis from the record, he
turns it on its head. [H]e ignores the substance of the stipulations and
assumptions upon which the proceedings below were predicated. He then takes it
upon himself to construe the claims, giving the method claims their broadest
possible interpretation in the process. Indeed, Judge Lourie begins, not with
the record, or even a proper exercise in claim construction, but with
identification of what he finds to be the fundamental concept "wrapped up in the
claim."

The denouement in this dissent:

The answer is not to rewrite the law by broadening the abstract
ideas exception to § 101, especially if the only way to do so is to ignore the
limitations in the claims actually before us.

In the finale, Chief Judge Rader indulges in nostalgic sentiment of 25 years
on the bench, with dismay over the cacophonous discord here. As Chief Judge his
primary responsibility is to sustain the court's respect of the law, by
harnessing the collective experience of those with whom he shares the bench so
as to reasonably interpret statute, and so provide guidance that affords
consistency. Instead, this case is a pinnacle of failure for the CAFC, and
especially for Chief Judge Rader, in exposing his incompetence in every facet
(logician, legal scholar, leader).

In the end, a singular realization emerges: the CAFC itself seeing that its
inability to establishing a meaningful consensus is a disgrace with a high cost.

Patents are a quite crooked game in this country, readily subject to judicial
bias and caprice, always in the service of plutocracy. This case goes a long way
in solidifying that impression.